The GAAR advisory panel has published a new opinion concerning ‘abnormal and contrived’ arrangements involving an employer-financed retirement benefit scheme (EFRBS) funded through multiple tripartite deeds.
This is the fifth opinion issued by the panel since its creation in 2013. HMRC must generally refer arrangements to the advisory panel for its opinion before issuing counteraction notices under the GAAR.
The scheme in this case was funded through two deeds of covenant, with the benefit of these covenants subsequently assigned by way of three sets of tripartite deeds involving the employer, the employee beneficiaries, and a company registered in the British Virgin Islands. These arrangements resulted in what the panel considered to be, in substance, loans to the employees.
The scheme was intended to avoid an immediate charge to income tax on the employee benefits, and obtain an immediate corporation tax deduction for the full amount contributed to the EFRBS.
The panel could see no reason, other than for tax purposes, for the steps involving undertakings to pay, assignments of benefits of undertakings, and releases of obligations to pay, in order to provide funding to the EFRB and money to the employees.
The panel’s view was that, had the EFRBS been funded in the normal way, with cash from the employer and the trustee lending funds to the employees concerned, none of the parties would have been in a substantially different economic or commercial position. There would also have been no need to involve the BVI-registered company in the arrangements.
The opinion also stated that a comparable commercial transaction without the tax avoidance element would have resulted in an an upfront corporation tax deduction for the employer, linked to the income tax charge on the loan from the EFRBS under the disguised remuneration legislation.
The GAAR advisory panel has published a new opinion concerning ‘abnormal and contrived’ arrangements involving an employer-financed retirement benefit scheme (EFRBS) funded through multiple tripartite deeds.
This is the fifth opinion issued by the panel since its creation in 2013. HMRC must generally refer arrangements to the advisory panel for its opinion before issuing counteraction notices under the GAAR.
The scheme in this case was funded through two deeds of covenant, with the benefit of these covenants subsequently assigned by way of three sets of tripartite deeds involving the employer, the employee beneficiaries, and a company registered in the British Virgin Islands. These arrangements resulted in what the panel considered to be, in substance, loans to the employees.
The scheme was intended to avoid an immediate charge to income tax on the employee benefits, and obtain an immediate corporation tax deduction for the full amount contributed to the EFRBS.
The panel could see no reason, other than for tax purposes, for the steps involving undertakings to pay, assignments of benefits of undertakings, and releases of obligations to pay, in order to provide funding to the EFRB and money to the employees.
The panel’s view was that, had the EFRBS been funded in the normal way, with cash from the employer and the trustee lending funds to the employees concerned, none of the parties would have been in a substantially different economic or commercial position. There would also have been no need to involve the BVI-registered company in the arrangements.
The opinion also stated that a comparable commercial transaction without the tax avoidance element would have resulted in an an upfront corporation tax deduction for the employer, linked to the income tax charge on the loan from the EFRBS under the disguised remuneration legislation.
