Introduction Details of the Schedule
2.Schedule 20 inserts a new Part 21BA into CTA 2010. Part 21BA comprises sections 938O to 938V.
3.Section 938O sets out the operative rule if a company is at any time in an accounting period party to a tax mismatch scheme (TMS). “Scheme losses and profits” made by the company in that period are not to be brought into account as debits or credits for the purposes of Part 5 (loan relationships) and Part 7 (derivative contracts) of CTA 2009.
4.Section 938P defines a TMS. A scheme is a TMS if either of two Conditions is met:
	the first condition (Condition A) is that when the company enters into the scheme there is no practical likelihood that the scheme will fail to result in a “relevant tax advantage” (RTA) of £2m or more. A RTA is defined in section 938R; and
	the second condition (Condition B) is that the purpose, or one of the main purposes, of entering into the scheme is to obtain the chance of securing a RTA.
5.The tests under condition A and B are applied to the position that exists at the outset of the scheme.
6.Section 938Q defines “scheme loss” and “scheme profit” as a loss or profit made by a company in an accounting period in relation to a tax mismatch scheme (as defined in section 938P) if the loss or profit:
	arises from a transaction, or series of transactions, that forms part of the scheme – subsection (1)(a);
	is, or is comprised in, an amount that is brought into account as a debit or credit for the purposes of Part 5 or 7 of CTA 2009 – subsection (1)(b); and
	meets either of the asymmetry conditions in subsection (2) or (5) – subsection (1)(c).
7.The asymmetry condition in subsection (2) is that the loss or profit affects the amount of any RTA secured by the scheme.
8.Subsection (4) applies where a loss or profit affects, or may affect, the amount of any RTA but not all of the loss or profit affects or may affect it. In such a case just the part of the loss or profit that does or may affect the RTA is treated as a scheme loss or profit.
9.The second asymmetry condition, in subsection (5), applies if it becomes clear that a scheme will not (despite the fact that it is a TMS) produce a RTA.
10.Section 938R defines the term “relevant tax advantage” as an “economic profit” (see section 938S) which is not negligible that is made by the company over the whole scheme period, and arises because of asymmetries in the way that the company brings, or does not bring, amounts into account as debits and credits under the loan relationships or derivative contracts rules.
11.“Asymmetries” are defined in s938R(4) to include in particular asymmetries in timing and quantification.
12.Subsection (5) makes clear that an economic profit includes an increase in an economic profit and a decrease in an economic loss.
13.Subsection (6) defines scheme period to mean the period during which the scheme has effect.
14.Section 938S explains the meaning of references to economic profits and losses. It provides that an economic profit or loss takes into account profits or losses made as a result of the operation of the Corporation Tax Acts and any adjustments required to reflect the time value of money.
15.In determining the amount of an economic profit or loss made by the company over the scheme period, amounts are only to be taken into account to the extent that they relate to the times when the company is party to the scheme.
16.Section 938T makes clear that in determining whether a scheme is a TMS it is assumed that the company obtains the full tax benefit of any loss made in relation to a loan relationship or derivative contract over the scheme period. Similarly it is assumed that the company incurs the full tax cost of any profit made from a loan or derivative over the scheme period.
17.This ensures that the tax advantage must arise as a result of structurally asymmetrical tax treatment of the transactions and not because of circumstantial matters such as losses that might be available to shelter profits from the loan or derivative.
18.Section 938U defines “scheme” as including all arrangements, schemes and understandings of any type whether or not legally enforceable, whether involving a single transaction or series of transactions.
19.Section 938V is a scope or boundary provision. It ensures that in determining whether any amounts are brought into account apart from the tax mismatch rules (and so might give rise to a RTA), existing unallowable purpose, tax arbitrage, and tax treatment of financing costs and income rules are to be treated as of no effect. It follows that the tax mismatch rules apply in priority to those rules.
20.Paragraph 4 introduces references to the new tax mismatch legislation into Schedule 4 of CTA 2009.
21.Paragraph 5 makes a consequential amendment to the tax arbitrage legislation in section 231(8) of the Taxation (International and Other Provisions) Act 2010.
22.Paragraph 6 contains commencement provisions.
23.Paragraph 6(1) provides that the amendments made by Schedule 20 have effect in relation to schemes entered into at any time, including a time before the commencement date.
24.Paragraph 6(2) provides that section 938O does not apply to scheme losses or profits that relate to a time before the commencement date, or to scheme profits that relate to a time on or after that date, but are made in relation to a scheme entered into before that date.
25.Paragraph 6(3) gives the commencement date, which is 5 December 2012.