Section 937C — Corporation Tax Act 2010: Meaning of “risk transfer scheme”

Meaning of “risk transfer scheme” 937C 1 A scheme to which a company (“company A”) is a party is a “risk transfer scheme” if conditions 1 to 3 are met.

2 Condition 1 is that the purpose, or one of the main purposes, of any member of the relevant group on entering into the scheme is to obtain a financial advantage for the relevant group that it is reasonable to assume could not otherwise have been obtained without the relevant group becoming subject to (or incurring the cost of avoiding) a relevant risk.

3 In subsection (2) “ a relevant risk ” means a risk that the relevant group would make economic losses in one or more accounting periods of company A as a result of fluctuations in—

a the rate of exchange between any two currencies, b the retail prices index (or any similar general index of prices) or any other index, or c any price or other value.

4 Condition 2 is that, as a result of the scheme, and disregarding the effect of this Part, the relevant group—

a is not subject to the relevant risk, or b is subject only to a negligible proportion of that risk.

5 Condition 3 is that, disregarding the effect of the provisions of the Corporation Tax Acts, condition 2 would not be met.

6 For the purposes of this section the relevant group obtains a “financial advantage” from a scheme if, taking into account the effect of the scheme on each member of the group, the scheme—

a increases the return on any investment, b reduces the costs of any borrowing, or c has an effect economically equivalent to that mentioned in paragraph (a) or (b).