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The taxpayer a UK resident investment company was owned by an overseas company O that in turn was owned by a Jersey resident company H.
The shares in H were held in trust for the H family. On 15 December 2003 the taxpayer company took out a short-term loan of £2m to pay a dividend to O. It was declared a dividend and paid to H.
The taxpayer then issued a zero-coupon bond ZCN to H for £1 999 500 redeemable on 17 December 2004 for £2 150 000. The taxpayer repaid the bank on 19 December 2003.
The following December the company borrowed £2m to repay the loan to H. The ZCN was redeemed on the same day for £2 147 106: £147 606 more than the issue price.
The operation was repeated in 2005 2006 and 2007....
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