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

Disguised interest: application of Chapter 2A of Part 6 of CTA 2009

Section 371SP ensures that the disguised interest rules can apply to a controlled foreign company (CFC) where the CFC is party to an arrangement that produces a return which is effectively interest in disguise, and the main purpose of the arrangement is to obtain a tax advantage.

• Where a CFC is party to an arrangement that produces a return which would normally be caught by the disguised interest rules (Chapter 2A of Part 6 of CTA 2009), but is excluded by the "no tax avoidance purpose" exemption, this section may override that exclusion.
• The override applies where it is reasonable to assume that a main purpose of the CFC being party to the arrangement is to obtain a tax advantage for any person, specifically by obtaining what would be a "relevant tax advantage" in relation to the CFC under the disguised interest provisions.
• When the conditions are met, the disguised interest rules are treated as applying to the return produced by the arrangement, meaning the return is taxed as if it were interest for the purposes of calculating the CFC's assumed taxable profits.
• This section operates alongside the general anti-avoidance rule in section 371SO and does not limit the scope of that wider provision.

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