Section 691 — Corporation Tax Act 2009: Meaning of “unallowable purpose”

Meaning of “unallowable purpose” 691 1 For the purposes of sections 690 and 692, a derivative contract of a company has an unallowable purpose in an accounting period if the purposes for which, at times during that period, the company—

a is a party to the contract, or b enters into transactions which are related transactions by reference to it, include a purpose (“the unallowable purpose”) which is not amongst the business or other commercial purposes of the company. 1A In subsection (1)(b) “ related transaction ”, in relation to a derivative contract, includes anything which equates in substance to a disposal or acquisition of the kind mentioned in section 596(1) (as read with section 596(2)).

2 If a company is not within the charge to corporation tax in respect of a part of its activities, for the purposes of this section the business and other commercial purposes of the company do not include the purposes of that part.

3 Subsection (4) applies if a tax avoidance purpose is one of the purposes for which a company—

a is a party to a derivative contract at any time, or b enters into a transaction which is a related transaction by reference to a derivative contract of the company.

4 For the purpose of subsection (1), the tax avoidance purpose is only regarded as a business or other commercial purpose of the company if it is not—

a the main purpose for which the company is a party to the derivative contract or, as the case may be, enters into the related transaction, or b one of the main purposes for which it is or does so.

5 The references in subsections (3) and (4) to a tax avoidance purpose are references to any purpose which consists of securing a tax advantage for the company or any other person.

6 In this section “ tax advantage ” has the meaning given by section 1139 of CTA 2010 (meaning of “tax advantage”).