Corporation Tax Act 2010 section 398E

Restriction on artificial losses or reductions in profits

Section 398E prevents a lessor company from obtaining a tax advantage by disallowing expenditure incurred with the main purpose, or one of the main purposes, of artificially reducing profits, creating losses, or increasing losses attributable to the relevant leasing activity.

• Expenditure incurred by the lessor in carrying on the relevant activity is caught if it has an "unallowable purpose"
• An unallowable purpose exists where the main purpose, or one of the main purposes, of incurring the expenditure is to obtain a relevant tax advantage
• On a just and reasonable apportionment, the portion of expenditure attributable to the unallowable purpose is left out of account when calculating profits or losses for corporation tax
• A relevant tax advantage means a reduction in profits, the creation of a loss, or an increase in losses attributable to the relevant activity for corporation tax purposes