Employee reward scheme adjudged to be unreasonable

The general anti-abuse rule advisory panel has decided that an employer-financed retirement benefit scheme (EFRBS) was not a reasonable arrangement.

The GAAR panel considered the effect of the arrangements was in substance loans to the employees. It could see no reason other than for tax purposes for the steps involving the creation of undertakings to pay assignments of benefits of undertakings and releases of obligations to pay to provide funding to the EFRB and money to the employees.

The scheme was funded through two deeds of covenant. The employer a third-party company registered in the British Virgin Islands (BVI) and the two employee beneficiaries entered into three sets of tripartite deeds.

The aim was to avoid an immediate charge to income tax on the funds provided to the employees and obtain an immediate corporation tax deduction for the sum contributed to the...