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TIOPA10/S371KB(1)(d) sets out the anti-avoidance condition. This is a purpose test of whether the CFC is involved in an arrangement to obtain a tax advantage (as defined by CTA10/S1139) for any person. It will be met if the CFC is not involved in any such arrangement at any time during the relevant accounting period. “Tax advantage� as defined at section 1139 refers to a UK tax advantage which includes the avoidance or reduction of a CFC charge (CTA10/S1139(2)(da)). An arrangement could, for example, include arrangements to convert non-local source income into local source income in order to avoid any restriction of non-local income covered by a notional interest deduction under Category B. Alternatively it could also apply to an arrangement that achieves a UK tax deduction where achieving that tax deduction is one of the main purposes of the arrangement. For these purposes “arrangement� is widely defined at TIOPA10/S371VA (see INTM248100).

The anti-avoidance condition will normally be met where for example low value activities such as data processing are transferred from the UK to, say, India for cost purposes, or where a CFC has non-trading finance profits that are taxable in its territory of residence but which are sheltered by trading losses deductible in that territory. However, in the latter example, the anti-avoidance condition is likely not to be met if non-trading finance profits are deliberately moved into the territory of residence of the CFC in order to take advantage of those losses.