‘Thin cap’ rules under attack

On Tuesday multi-nationals will launch their latest attack on the lawfulness
of UK direct tax policy, as the ‘thin cap’ group litigation order reaches the

The case, whose test claimants are the French building giant Lafarge, Volvo,
Pepsi and Caterpillar, have labelled the UK’s thin capitalisation rules as
disproportionately harsh.

The thin cap rules are anti-avoidance measures designed to prevent
international groups loading up UK subsidiaries with debt in order to reduce
corporation tax bills.

The barrister leading the action, Graham Aaronson QC, said the challenge did
not object to the anti-avoidance rules per se, and that the claimants had not
been trying to avoid tax.

He added: ‘The anti avoidance initiatives should have been tailored to deal
with cases of abuse.’

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