RegulationCorporate GovernanceECJ set to rule on thin-cap test case

ECJ set to rule on thin-cap test case

Final judgement on anti-avoidance measures meant to prevent companies with foreign subsidiaries from shifting large amounts of debt to the UK is due on 13 March

The European Court of Justice has set a date for its final judgment on the
multimillion pound thin-cap case challenging the legitimacy of the UK’s tax
rules governing intra-company debt.

The decision on the case, brought by test claimants Lafarge, Volvo, Pepsi and
Caterpillar, is due on 13 March.

The thin-cap rules under scrutiny are anti-avoidance measures meant to
prevent companies with foreign subsidiaries from shifting large amounts of debt
to the UK to maximise profits in low tax jurisdictions.

The advocate general opinion preceding the case said the rules were generally
acceptable but needed to be adjusted to ensure they were not unnecessarily
harsh.

In the opinion, the advocate general said the UK rule comparing the level of
indebtedness between group and subsidiary was crude and inappropriate, and also
said the rules should judge intra-company loans on the ‘arms’ length’ principle,
where any lending should be judged on what was available commercially.

Whether the ECJ follows the advocate general opinion, however, is
questionable. It has done so traditionally but in recent cases it has introduced
its own interpretations.

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