The ECJ’s advocate general, Leendeert Goelhoed, will finally give his opinion
on the case, delayed from earlier this year.
The case concerns the UK’s treatment of debt interest, and the ability of
multi-nationals to pour debt into UK subsidiaries to obtain relief on profits.
Though the UK has changed its rules in relation to thin capitalisation, meaning
the case has few prospective implications, Peter Cussons, the international tax
expert at PricewaterhouseCoopers, said the case would be significant even so.
‘It’s definitely not the telephone number figures we saw in the Franked
Investment Income case. It will be worth hundreds of millions rather than
billions,’ he said.
The case concerns three types of group: an EU parent and a UK subsidiary, a
more complicated corporate structure involving several EU companies, and a US
company lending to the UK. The lead claimants, representing around 20 to 30
multi-nationals as a whole, are Lafarge, Volvo, Pepsi and Caterpillar.
The case will determine whether or not the companies could have claimed tax
relief on subsidiary debts, and give an indication as to whether other claims
could have been made had they been able to use more debt.
The UK version of the case is similar to a German case won by corporates on
the issue a few years ago, though advisers are unsure as to how clear a guide
the case will be, given changes in the mood of the court in favouring member
states in the last year.
The case is unlikely to have a impact going forward since the UK changed the
rules in the 2004 Budget. Then, the government extended the thin capitalisation
rules to UK groups and subsidiaries.
Though such rules are unlikely to be used in practice – given there would be
little or no tax advantage in transferring debt around in that way – it has
meant that the UK cannot be accused of discriminating in applying the thin cap
rules to foreign multi-nationals.
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