Gov’t unveils five measures to curb £9bn tax avoidance

Companies that use international double taxation rules have been told HM Revenue & Customs is coming after them, as the government announced a five-point tax avoidance crackdown designed to raise £9bn in revenue.

In additional to clamping down on double taxation exploitation, partnership rules are also being changed to prevent cases where partnership losses are allocated to an individual partner to enable them to access certain loss reliefs.

The changes will take effect from 6 April 2014 with the exception of anti-avoidance rules concerning tax-motivated profit allocations. These rules come into force from 5 December 2013 in order to protect against risks to tax revenue.

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A third measure will see avoidance schemes using total return swaps blocked where deductions are claimed for payments between companies in the same group under derivative contracts which are linked to company profits.

It will apply from 5 December 2013 to schemes entered into on any date.

Double taxation relief (DTR) rules have also been changed to prevent avoidance. Current rules allow foreign tax to be credited against UK tax in certain circumstances.

The overarching principle of the double taxation rules is that relief is allowed against UK tax on the same income or gain on which foreign tax has been suffered.

Section 42 of these rules impose a limit on the amount of credit for foreign tax against corporation tax. Legislation will now be introduced in Finance Bill 2014 to put beyond doubt that Section 42 is to be applied separately to each non-trading credit.

Finally, legislation will also be introduced in Finance Bill 2014 to reduce the credit allowed or deduction given where a repayment is made by a foreign tax authority and there are arrangements in place which enable another person to receive the repayment of foreign tax.