Revenue Note for Guidance
This section makes it a condition of remaining within tonnage tax that the company not be a party to anything which would be an abuse of the regime. This provision is aimed at deliberate cases of serious or repeated abuse. It will not be used to attack minor computational errors or genuine misunderstandings. Also, it would not be deployed to attack legitimate pre-election restructuring such as that needed to allow a group elect for the regime (e.g. division of activities into shipping activities and non-shipping activities).
(1) & (2) The section applies if a tax advantage (within the meaning of the general anti-avoidance section, namely, section 811) is obtained through the application of tonnage tax, by either the tonnage tax company for its non-tonnage tax activities or by any other company.
(3) A company is expelled from tonnage tax where there is an abuse of the scheme as determined under this section. Again, the power of expulsion is permissive. Circumstances may arise where expulsion may not be appropriate.
(4) Where a single company is expelled, the tonnage tax election ceases to have effect from the beginning of the accounting period in which the abuse started. In the case of a group, the group election ceases to have effect from whatever date Revenue specifies. But the date cannot be earlier than the start of the accounting period in which a group member entered into the transaction or arrangement concerned.
(5) Exit charges as provided for in section 697P apply to a company expelled from tonnage tax.
Relevant Date: Finance Act 2021