Regulation 19 Description 9: Financial productsF1

(1)

Subject to regulation 21, arrangements are prescribed if—

(a)

condition 1 is met, and

(b)

it would be reasonable to expect an informed observer (having studied the arrangements and having regard to all relevant circumstances) to conclude that—

(i)

condition 2 is met, and

(ii)

either condition 3 or condition 4 is met.

(2)

Condition 1 is that the arrangements include at least one financial product specified in regulation 20(1) (a “specified financial product”).

(3)

Condition 2 is that the main benefit, or one of the main benefits, of including a specified financial product in the arrangements is to give rise to a tax advantage.

(4)

Condition 3 is that a specified financial product included in the arrangements contains at least one term which is unlikely to have been entered into by the persons concerned were it not for the tax advantage.

(5)

Condition 4 is that the arrangements involve one or more contrived or abnormal steps without which the tax advantage could not be obtained.

(6)

For the purposes of this regulation condition 3 is treated as not having been met if—

(a)

the specified financial product includes a term requiring that it is held for a minimum period of time before it is redeemed and—

(i)

section 135 or 136 of TCGA 1992 applies to the specified financial product, and

(ii)

condition 3 is met only by virtue of that term; or

(b)

the specified financial product includes a term whereby the issuing company can secure that the date for redemption falls before the end of the permitted period and—

(i)

but for that term, the specified financial product would be an equity note, and

(ii)

condition 3 is met only by virtue of that term.

(7)

In paragraph (6)(b) “equity note” and “the permitted period” have the meanings given by section 1016 of CTA 2010.

(8)

For the purposes of condition 4 a step is not to be treated as being contrived or abnormal if—

(a)

that step involves only the transfer of an asset to which the condition in paragraph 15A(2)(b) of Schedule 7AC to TCGA 1992 applies; or

(b)

that step involves only the issue of shares and—

(i)

that step is taken to eliminate or substantially reduce the economic risk of holding a loan relationship or a derivative contract, or part of such a loan relationship or a derivative contract, which is attributable to fluctuations in exchange rates, and

(ii)

the shares are treated for accounting purposes as a liability of the company in accordance with generally accepted accounting practice.

(9)

For the purposes of this regulation, neither condition 3 nor condition 4 is treated as having been met if—

(a)

the specified financial product includes a term providing for conversion into, or redemption in, a currency other than sterling, and

(b)

both condition 3 and condition 4 are met only by virtue of that term.

Annotations

Textual amendments

F1: Regs. 19-21 inserted (23.2.2016) by The Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) (Amendment) Regulations 2016 (S.I. 2016/99), regs. 1(1), 9 (with reg. 1(2))