In a decision that closely followed the the advocate general’s opinion on the
case, the ECJ said that the UK anti-avoidance rules should not apply where a
company could show that shifting debt between subsidiaries was done for
commercial purposes. In wholly artificial arrangements the rules could apply.
It would be left to the UK courts to decide when arrangements were
‘In order to be justified, those rules must allow the companies concerned to
produce evidence as to the commercial reasons for entering into the
transaction,’ the ECJ said.
Jonathan Bridges, from
KPMG’s EU law team, said
the judgment would see ‘further activity’ in the UK courts and also raised
questions about the recently introduced rules for transfer pricing between UK
The thin cap case was brought by test claimants Lafarge, Volvo, Pepsi and
Caterpillar, who challenged rules put in place to prevent companies with foreign
subsidiaries from shifting large amounts of debt to the UK in order to maximise
profits in low-tax jurisdictions.
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