Taxation (International and Other Provisions) Act 2010 section 371EE

Leases to UK resident companies etc.

Section 371EE brings certain non-trading finance profits of a CFC within the scope of the CFC charge where those profits arise from finance leases made with connected UK companies or UK permanent establishments, and the lease was chosen over a direct purchase mainly for tax reasons.

• Non-trading finance profits from relevant finance leases made by a CFC (directly or indirectly) with a connected UK resident company, or with a connected non-UK resident company for the purposes of its UK permanent establishment, may fall within this section.
• The profits are caught only where it is reasonable to suppose that the lease was entered into as an alternative to the other company purchasing the asset outright (or making a similar arrangement that would either not be a finance lease or would not involve the CFC).
• In addition, it must be reasonable to suppose that the main reason, or one of the main reasons, for choosing the lease over a direct purchase is connected to reducing or avoiding a tax or duty liability of any person in any territory — not just the UK.
• The test focuses specifically on why the lease route was preferred over other means of obtaining use of the asset, such as outright purchase or an arrangement that would not involve the CFC or would not constitute a relevant finance lease.