Avoidance scheme fails

Greene King plc loaned £300m to GKB a wholly-owned subsidiary in 2000. At the same time GKB created unsecured loan stock with a nominal value of £300m which was issued to Greene King as security for the loan.

Greene King plc assigned its right to receive the interest on the unsecured loan stock in 2003 in exchange for preference shares carrying a special initial dividend issued by another subsidiary GKA.

GKB paid loan interest to GKA. The latter subsidiary paid the special dividend to Greene King plc which also retained the right to receive the repayment of the £300m.

HMRC concluded that the purpose of the arrangements which had been devised by a large accountancy firm was to take advantage of a loophole in the loan relationship rules.

The aim was to make a tax saving by allowing GKB to claim...