Taxation (International and Other Provisions) Act 2010 section 245

Application of the rule against deduction for untaxable payments

Section 245 sets out the three conditions that must all be met before the rule preventing a tax deduction for untaxable payments can apply.

• The rule against deduction for untaxable payments applies only when three conditions are all satisfied simultaneously.
• The conditions relate to the nature of the payment, the connection to a tax avoidance scheme, and the tax position of the recipient.
• The recipient must either not be liable to tax on the payment, or have their tax liability reduced, as a result of the provisions of the scheme in question.
• The legislation explicitly clarifies that the link to the scheme applies both where the recipient is not liable to tax and where their liability is merely reduced, which represents a minor change in law favourable to the taxpayer.