The GAAR advisory panel’s latest opinion finds that a scheme involving the artificial repayment of a loan or advance to a participator was not a reasonable course of action.
The panel’s opinion covers the artificial repayment of a participator loan via a specially created company, the value of which depended on the amount to be paid to it by its participator. The scheme involved an individual who was the sole director of the company in question. The individual had an outstanding loan balance with the company of around £1.8m. He set up a new company in Guernsey which almost immediately issued some £2m in new share capital to its two nominee company shareholders (holding those shares for the benefit of the individual). No call was made on those shares (ie the individual did not pay for them).
The Guernsey company shares were then transferred to the UK company which treated the transfer as repayment of the individual’s outstanding loan balance. The rationale was that, because the loan had been repaid, no liability would arise under the close company outstanding loan to participator rules in CTA 2010 s 455.
The panel’s conclusion was that entering into the tax arrangements and carrying out the tax arrangements was not a reasonable course of action in relation to the relevant tax provisions. In effect, the parties to the arrangements had ‘devised a contrived way of circumventing the s 455 rules’. The setting up of the Guernsey company appeared to have no commercial purpose or substance, and the issuing of the £2m of share capital, leaving it uncalled, seemed ‘abnormal’. Although transferring shares to clear the loan account was not unusual, in this case the asset being transferred (the Guernsey company) had been ‘specially created for the purpose of enabling the transfer to be made and the debt satisfied’ and the individual would be left with a potential liability in respect of the uncalled share capital.
The panel also considered that creating value of £2m in a matter of days seemed contrived.
The GAAR advisory panel’s latest opinion finds that a scheme involving the artificial repayment of a loan or advance to a participator was not a reasonable course of action.
The panel’s opinion covers the artificial repayment of a participator loan via a specially created company, the value of which depended on the amount to be paid to it by its participator. The scheme involved an individual who was the sole director of the company in question. The individual had an outstanding loan balance with the company of around £1.8m. He set up a new company in Guernsey which almost immediately issued some £2m in new share capital to its two nominee company shareholders (holding those shares for the benefit of the individual). No call was made on those shares (ie the individual did not pay for them).
The Guernsey company shares were then transferred to the UK company which treated the transfer as repayment of the individual’s outstanding loan balance. The rationale was that, because the loan had been repaid, no liability would arise under the close company outstanding loan to participator rules in CTA 2010 s 455.
The panel’s conclusion was that entering into the tax arrangements and carrying out the tax arrangements was not a reasonable course of action in relation to the relevant tax provisions. In effect, the parties to the arrangements had ‘devised a contrived way of circumventing the s 455 rules’. The setting up of the Guernsey company appeared to have no commercial purpose or substance, and the issuing of the £2m of share capital, leaving it uncalled, seemed ‘abnormal’. Although transferring shares to clear the loan account was not unusual, in this case the asset being transferred (the Guernsey company) had been ‘specially created for the purpose of enabling the transfer to be made and the debt satisfied’ and the individual would be left with a potential liability in respect of the uncalled share capital.
The panel also considered that creating value of £2m in a matter of days seemed contrived.
