Corporation Tax Act 2009 section 531

The redemption return condition: unallowable purposes

Section 531 defines what constitutes an "unallowable purpose" when determining whether a share qualifies as a publicly issued share that can be excluded from the redemption return condition under section 530.

• A share may be treated as a qualifying publicly issued share and thus exempted from the redemption return condition, but only if it was not issued for an unallowable purpose.
• An unallowable purpose exists where a main purpose of the arrangements under which the share is issued is to secure a tax advantage for any person through the application of the loan relationships rules.
• The test looks at the purposes behind the arrangements at the time the share was issued, focusing on whether obtaining a corporation tax benefit was a key motivation.
• If an unallowable purpose is identified, the share cannot qualify as an excepted share and will therefore remain subject to the redemption return condition.