The Government has introduced an anti avoidance measure in respect of total return swaps and other financial derivatives.
Where profits of a company are paid out under a total return swap or other derivative to another group company no corporate tax deduction will be allowed. If there is no tax avoidance motive credits are also non-taxable. If there is a tax avoidance motive, credits will be taxable.
Who will be affected?
Companies using total return swaps or other derivative contracts giving rise to a payment that equates in substance to profit to another group company.
The rules apply to credits and debits arising on or after 5 December 2013 in relation to transactions entered into on any date.
This is an anti-avoidance rule and there are exceptions to exclude commercial hedging arrangements with third parties.