TaxPersonal TaxRevenue wins tax relief case

Revenue wins tax relief case

The Inland Revenue has scored a landmark court victory over multi-national companies which strips them of the right to use losses on intra-group loans for tax relief.

Appeal Court judges last week threw out an appeal against a High Court ruling that property developer Taylor Clark International could not use exchange losses on a $15m (#9m) loan to reduce its capital gains tax liabilities.

The case hinged on a long-running dispute between the Revenue and tax practitioners over what a ‘debt on security’ is.

Tax legislation states that losses on debts can only be used to offset capital gains taxes if they are a debt on a security.

Lord Justice Peter Gibson stated that the meaning of ‘debt on a security’ in the legislation was obscure and lacking in a rational explanation.

Taylor Clark argued that exchange losses on a loan to a Californian subsidiary to buy property in Silicon Valley fell under the definition in the legislation. The loss occurred because the loan was repaid in dollars, which had fallen against sterling.

But the Appeal Court judges decided the definition only accounts for marketable debts, such as gilts or bonds with a fixed repayment date.

Brian Dunk, tax partner at PricewaterhouseCoopers, said: ‘Had the case gone the other way there would have been widespread opportunities for companies to get loss relief on capital gains from intra-group borrowings.’

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