Corporation Tax Act 2009 section 691

Meaning of "unallowable purpose"

Section 691 defines what constitutes an "unallowable purpose" in the context of derivative contracts, which determines when tax relief on debits may be restricted under the anti-avoidance rules.

• A derivative contract has an unallowable purpose in an accounting period if any of the purposes for which the company holds the contract, or enters into related transactions, is not a genuine business or commercial purpose of the company.
• If the company carries on activities that fall outside the charge to corporation tax (for example, activities outside a UK permanent establishment), the purposes of those activities are excluded from the company's recognised business and commercial purposes.
• A tax avoidance purpose — meaning any purpose of securing a tax advantage for the company or another person — is treated as an unallowable purpose unless it is only a minor or incidental part of the company's motivation for holding the contract or entering into the related transaction.
• A tax avoidance purpose can only qualify as a business or commercial purpose if it is neither the main purpose nor one of the main purposes for which the company is party to the derivative contract or enters into the related transaction.