Tax judges have dealt a blow to HMRC by broadly ruling in favour of business
heavyweights in a landmark tax case involving intercompany loans.
The case concerned Volvo, Siemens, Lafarge, IBM and Standard Bank of South
Africa and advances to their UK subsidiaries.
HM Revenue & Customs locked horns with the companies, arguing the amounts
of the loans were excessive and challenging the interest deductions.
The case went all the way to the European Court of Justice which referred it
back to UK courts ruling the Finance Act 2004, went further than needed to
protect the UK tax base.
Today judges said UK law should be disapplied where the lending was for
overriding commercial reasons and that it should be for HMRC to demonstrate that
the lending was not commercial.
Since there was no such evidence here, Lafarge, Volvo and Siemens succeeded
in principle in their claims.
Bill Dodwell, head of tax policy at Deloitte, said: “HMRC will not be happy
with this result.
“The judge has held that there were commercial reasons for lending in all
cases, even though several companies had previously agreed to disallow part of
their interest claims.”
However the High Court also ruled companies which had pumped extra share
capital into the UK could not succeed in their claim “that they would not have
done so, apart from UK tax rules,” Deloitte added.
Only loans from EU companies could benefit from the ruling and as a result,
IBM and Standard Bank of South Africa could not succeed in their claims.
“Inevitably the case will go to the Court of Appeal and possibly the Supreme
Court,” Dodwell added.
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