Corporation Tax Act 2010 section 938T

Tax capacity assumption

Section 938T establishes the assumptions that must be made about a company's tax capacity when determining whether a scheme will, or might, secure a relevant tax advantage under the targeted anti-avoidance rules for loan relationships and derivative contracts.

• When assessing whether a scheme is a tax mismatch scheme, the company's economic profits and losses over the scheme period must be calculated using specific tax capacity assumptions.
• The company is assumed to obtain the full tax benefit of any loss made in relation to a loan relationship or derivative contract during the scheme period.
• The company is assumed to incur the full tax cost of any profit made in relation to a loan relationship or derivative contract during the scheme period.
• These assumptions ensure that any tax advantage must arise from structurally asymmetric tax treatment, not from circumstantial factors such as unrelated losses available to shelter profits.